Description of Business and

Basis of Presentation

Founded in

1959,

Generac Holdings Inc. (the Company) is a leading global designer and manufacturer of a wide range of power generation equipment and other engine powered products serving the residential, light-commercial and industrial markets. The Company’s power products are available globally through a broad network of independent dealers, distributors, retailers, wholesalers and equipment rental companies, as well as sold direct to certain end user customers.

Over the years, the Company has executed a number of acquisitions that support its strategic plan (as discussed in Item

of its Annual Report on Form

-K for the year ended

December 31, 2017).

A summary of acquisitions affecting the reporting periods presented include:

●

June 2018,

the Company acquired Selmec Equipos Industriales, S.A. de C.V. (Selmec), headquartered in Mexico City, Mexico. Selmec is a designer and manufacturer of industrial generators ranging from

10kW

2,750kW.

Selmec offers a market-leading service platform and specialized engineering capabilities, together with robust integration, project management and remote monitoring services.

●

January 2017,

the Company acquired Motortech GmbH (Motortech), headquartered in Celle, Germany. Motortech is a leading manufacturer of gaseous-engine control systems and accessories, which are sold primarily to European gas-engine manufacturers and to aftermarket customers.

The condensed consolidated financial statements include the accounts of the Company and its subsidiaries that are consolidated in conformity with U.S. generally accepted accounting principles (U.S. GAAP). All intercompany amounts and transactions have been eliminated in consolidation.

The condensed consolidated balance sheets as of

June 30, 2018

and

December 31, 2017,

the condensed consolidated statements of comprehensive income for the

three

and

six

months ended

June 30, 2018

and

2017,

and the condensed consolidated statements of cash flows for the

six

months ended

June 30, 2018

and

2017

have been prepared by the Company and have

not

been audited. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary for the fair presentation of the financial position, results of operation and cash flows have been made. The results of operations for any interim period are

not

necessarily indicative of the results to be expected for the full year.

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Certain information and footnote disclosure normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form

-K for the year ended

December 31, 2017.

New Accounting Standards

Not

Yet Adopted

February 2016,

the Financial Standards Accounting Board (FASB) issued Accounting Standards Update (ASU)

2016

02,

Leases

. This guidance was issued to increase transparency and comparability among organizations by requiring the recognition of lease assets and lease liabilities on the balance sheet and by disclosing key information about leasing arrangements. The guidance should be applied using a modified retrospective approach and is effective for the Company in

2019.

The Company is currently assessing the impact the adoption of this guidance will have on the Company’s results of operations and financial position.

August 2017,

the FASB issued ASU

2017

12,

Derivatives and Hedging – Targeted Improvements to Accounting for Hedging Activities

. This guidance was issued to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and to make certain targeted improvements to simplify the application of the hedge accounting guidance. The standard is effective for the Company in

2019,

with early adoption permitted. The Company is currently assessing the impact the adoption of this guidance will have on the Company’s results of operations and financial position.

There are several other new accounting pronouncements issued by the FASB. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does

not

believe any of these accounting pronouncements has had or will have a material impact on the Company’s consolidated financial statements.

Recently Adopted

Accounting Standards

January 1, 2018,

the Company adopted ASU

2017

07,

Improving the Presentation of Net Periodic Pension Cost and Net

Periodic

Postretirement Benefit Cost

. The new standard requires presentation of certain components of net periodic pension cost as non-operating expense. The adoption of this new standard did

not

have a significant impact on the Company’s financial statements. The changes in presentation of the components of net periodic pension cost were applied retrospectively to all periods presented.

January 1, 2018,

the Company adopted ASU

2016

15,

Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments

. The changes in presentation of the proceeds from beneficial interests in securitization transactions were applied retrospectively to all periods presented.

January 1, 2018,

the Company adopted ASU

2014

09,

Revenue from Contracts with Customers

, and all related amendments (the “new revenue recognition standard”) using the full retrospective method, which requires application to all periods presented.

The impact of adopting the above standards on the Company’s previously reported condensed consolidated financial statements is as follows:

Condensed Consolidated Balance Sheets	June 30, 2017
	As Reported		Impact of Adoption			As Adjusted

Accounts receivable	$	243,285	$	(3,143	)	$	240,142
Inventories		378,110		6,081			384,191
Other accrued liabilities		93,343		5,253			98,596
Deferred income taxes		37,575		(3,190	)		34,385
Other long-term liabilities		66,633		5,844			72,477
Retained earnings	$	495,463	$	(4,969	)	$	490,494

	December 31, 2017
	As Reported		Impact of Adoption			As Adjusted

Accounts receivable	$	280,002	$	(708	)	$	279,294
Inventories		380,341		6,708			387,049
Other accrued liabilities		105,067		7,551			112,618
Deferred income taxes		43,789		(1,937	)		41,852
Other long-term liabilities		76,995		5,898			82,893
Retained earnings	$	616,347	$	(5,513	)	$	610,835

Condensed Consolidated Statements of Comprehensive Income	Three Months Ended June 30, 2017
	As Reported		Impact of Adoption			As Adjusted

Net sales	$	395,376	$	(501	)	$	394,875
Cost of goods sold		260,916		1,038			261,954
Selling and service expenses		43,116		(1,106	)		42,010
Research and development expenses		10,567		(14	)		10,553
General and administrative expenses		21,361		46			21,407
Other, net		1,437		140			1,577
Provision for income taxes		14,114		(236	)		13,878
Net income attributable to Generac Holdings Inc.	$	25,660	$	(369	)	$	25,291

Earnings per share
Basic	$	0.42	$	(0.01	)	$	0.41
Diluted	$	0.41	$	-		$	0.41

Comprehensive income attributable to Generac Holdings Inc.	$	32,577	$	(369	)	$	32,208

	Six Months Ended June 30, 2017
	As Reported		Impact of Adoption			As Adjusted

Net sales	$	727,190	$	(1,830	)	$	725,360
Cost of goods sold		482,244		1,395			483,639
Selling and service expenses		83,300		(1,823	)		81,477
Research and development expenses		20,868		(28	)		20,840
General and administrative expenses		42,334		46			42,380
Other, net		1,214		280			1,494
Provision for income taxes		22,365		(664	)		21,701
Net income attributable to Generac Holdings Inc.	$	38,502	$	(1,036	)	$	37,466

Earnings per share
Basic	$	0.63	$	(0.01	)	$	0.62
Diluted	$	0.63	$	(0.02	)	$	0.61

Comprehensive income attributable to Generac Holdings Inc.	$	48,964	$	(1,036	)	$	47,928

Condensed Consolidated Statement of Cash Flows	Six Months Ended June 30, 2017
	As Reported			Impact of Adoption			As Adjusted

Net income	$	38,594		$	(1,036	)	$	37,558
Deferred income taxes		17,164			(664	)		16,500
Accounts receivable		5,362			(2,858	)		2,504
Inventories		(13,981	)		5,745			(8,236	)
Other accrued liabilities		(559	)		(2,585	)		(3,144	)
Net cash provided by operating activities	$	55,674		$	(1,398	)	$	54,276

Proceeds from beneficial interests in securitization transactions	$	-		$	1,398		$	1,398
Net cash used in investing activities	$	(8,825	)	$	1,398		$	(7,427	)